Social care  

Social care bill presents new opportunities for advice

  • Describe the changes to the care system brought about by the new national insurance levy
  • Explain where costs are capped to
  • Explain how a DC penion pot could be used
Social care bill presents new opportunities for advice
(James Hose/Unsplash)

If anyone was in any doubt about the government’s commitment to its social care funding deal, the chancellor’s spring statement should have dispelled that.

Faced with a major cost of living crisis, and despite huge public and political pressure including from within his own party, Rishi Sunak stuck to his principles and proceeded with the 1.25 percentage point increase in the rate of national insurance. This will be earmarked to provide further post-pandemic support for the NHS and to fund the government’s share of its new bill on social care funding.

I believe he should be given credit for that. Despite all the many financial challenges we face as a nation, the health impact of the pandemic has shown just how important it is to have a high-quality, properly funded care system, and this will have to be paid for.

After a heated ‘ping pong’ debate between the House of Commons and Lords, the health and care bill has now been enacted. While this does bring clarity, the bill is not straightforward, and people will need help understanding how it could affect them.

Advisers will have a key role to play here including helping people plan ahead. Indeed, the potential need to contribute to care costs in later life could – and arguably should – become a key part of retirement planning. It also adds to the need for ongoing advice in retirement and increases the merit of involving younger family members in such discussions.

The background

Despite recent unsettlement in mortality trends, on average, we are living longer. That means more of us are likely to need care in later life – and that has to be paid for.

I believe most would agree that it is right to share costs between the state and individuals, based on their ability to pay. To allow individuals and families to plan ahead, the sharing needs to be clear, and ideally stable over the long term, free of political interventions.

The new bill is a big step forward here and the cap on personal contributions, albeit only on eligible care costs, opens up a new world of advice opportunities.

State contributions to social care

The new bill means that for many people the government will fund an increased proportion of care costs. This will be paid for through an increase of 1.25 percentage points in both employer and individual NI rates from April 2022, although initially much of this will provide post-pandemic support to the NHS. There is also an additional 1.25 per cent added to dividend taxes, ensuring individuals with investment income from stocks and shares will also contribute even if they have no earned income. Investments within Isas and pensions will be exempt from this.

In April 2023, the extra NI will become a separate health and social care levy, visible as such on payslips. At that point, the levy will also be payable by those above state pension age who have earned income above the increased NI threshold. Its application to those above state pension age avoids heightened challenges around intergenerational fairness.